No. of Recommendations: 1
These covered call writing strategies seem to me to be a very risky way to earn 10%

Can you name anything these days paying 8% that is not risky; likely even more so?

You have little upside and the downside could be substantial.

The upside is locked in - the 10%.

The downside is locked in. The price of the stock minus the call premium if the stock goes $0. In that respect, the downside risk is less than simply owning the stock without the covered call.

If it drops just 1.5 points between now and January you will lose money on the trade.

No. You will still make about 7-8% in income (call premium + anticipated div). You will only "lose money" (principle) if you were to sell it after January and while it is still down.

There is no requirement to sell it in January if the option expires out of the money. In fact, that is often the desired result for those that wish to roll their options forward.

Note, if the stock drops any time prior to January (those 1.5 points), the value of the option will also go down in value, allowing a person the ability to buy it back, at a small profit, and allowing that person to cut their loses on the initial stock purchase.

Covered Call writing is generally considered a conservative method of income investing, not a risky one.

http://www.investopedia.com/articles/optioninvestor/08/cover...

Widely viewed as a conservative strategy, professional investors write covered calls to increase their investment income...
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